Bureau of Local Government Finance Opinion

May 20, 1999 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Angel P. Palomares Member-Commissioner Central Board of Assessment Appeals (CBAA) 7th Floor EDPC Building BSP Complex Roxas Boulevard Manila S i r : This refers to your letter dated April 23, 1999 requesting confirmation that "plant equipment and industrial machineries of a corporation are not subject to real property tax anymore when the same are no longer used actually, directly and exclusively for its purpose . . . by reason of closure, cessation of operations, and other causes that legally prevent the corporation from continuing its former business activity." It is represented that you are aware of the same stand taken by the Department of Finance under its rulings implementing the provisions of the then Real Property Tax Code (PD No. 464). However, the propriety of the same (ruling), is apparently being questioned and in view of the contention that the same no longer holds true under R.A. No. 7160, otherwise known as the Local Government Code of 1991. A perusal of one of the rulings implementing the then PD No. 464, particularly the 3rd Indorsement dated February 23, 1988 of the Department of Finance, copy attached, clearly manifests that such a stand "that machinery should be taxable when actually, directly and essentially used to meet the needs of the particular industry, business or works," is primarily based on the definition of Machinery, particularly under Section 3(m) of the said Decree; which provides as follows: "Sec. 2. Definition of Terms . When used in this Code. "xxx xxx xxx. "(m) Machinery . shall embrace machines, equipment, mechanical contrivances, instruments, appliances and apparatus attached to the real estate. It shall include the physical facilities available for production, as well as the installations and appurtenant service facilities, together with all those not permanently attached to the real estate but are actually, directly and essentially used to meet the needs of the particular industry, business, or works, which by their very nature and purpose are designed for, or essential to manufacturing, commercial, mining industrial or agricultural purposes ." (Emphasis supplied.) R.A. No. 7160 defined machinery under Section 199(o), thus: "Section 199. Definitions . When used in this Title; the term: "xxx xxx xxx. "(o) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which area actually, directly, and exclusively used to meet the needs of the particular industry, business or activity which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes; "xxx xxx xxx." Comparing the said Section 3(m) of PD 464 with the definition of machinery under Section 199(o) of RA No. 7160 reveals that, basically, the two provisions render the same view as far as the "actual, direct and exclusive use" of machinery is concerned, hence, our April 4, 1997 ruling, copy attached, which maintained that: "When machineries are no longer used for its purpose by reason of closure or cessation of production, the same should be transferred from the Taxable Roll to the Exempt Roll and not be subjected to the payment of real property taxes during the period of non use." aSCHIT We trust that this will clarify matters. Very truly yours, (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge